1 answer

Consider two neighboring island countries, Botoga and Fiatstan. Each has 72,000 labor hours available per week...

Question:

Consider two neighboring island countries, Botoga and Fiatstan. Each has 72,000 labor hours available per week that it can use to produce jeans, wheat, or a combination of both. The following table shows the amount of labor hours required to produce 1 pair of jeans or 1 bushel of wheat.

Country

Jeans

Wheat

(Labor hours per pair)

(Labor hours per bushel)

Botoga 80 16
Fiatstan 24 12

_____________ (Botoga/Fiatstan) has an absolute advantage in the production of jeans, and ___________ (Botoga/Fiatstan) has an absolute advantage in the production of wheat.

Initially, suppose Botoga uses 54,000 hours of labor per week to produce jeans and 18,000 hours per week to produce wheat, while Fiatstan uses 18,000 hours of labor per week to produce jeans and 54,000 hours per week to produce wheat. Assume there are no other countries willing to trade goods, so in the absence of trade between these two countries, each country consumes the amount of jeans and wheat it produces.

Botoga’s opportunity cost of producing 1 pair of jeans is ______ bushel of wheat, and Fiatstan’s opportunity cost of producing 1 pair of jeans is _____ bushel of wheat. Therefore, __________ (Botoga/Fiatstan) has a comparative advantage in the production of jeans, and __________ (Botoga/Fiatstan) has a comparative advantage in the production of wheat.

When neither country specializes, the total production of jeans is ________ pairs per week, and the total production of wheat is _______ bushels per week.

Suppose that Botoga completely specializes in the production of the good in which it has a comparative advantage, producing only that good. It will produce _________ (Bushels or jeans). Suppose also that Fiatstan does not specialize and uses 54,000 hours of labor to produce jeans and 18,000 hours of labor to produce wheat. It will produce _________ pairs of jeans and _________ bushels of wheat.

Suppose Botoga and Fiatstan agree to trade with each other, exchanging 1,100 pairs of jeans for 3,300 bushels of wheat. In particular, Botoga will export the goods it produces, and Fiatstan will export the goods that Botoga does not produce.

With trade, Botoga will ________ (import or export) jeans and ________ (import/export) wheat. Fiatstan will _______ (import/export) jeans and ______ (import/export) wheat.

When Botoga specializes and Fiatstan still produces the combination of goods using 54,000 hours of labor to produce jeans and 18,000 hours of labor to produce wheat, the total production of jeans becomes __________ pairs per week, and the total production of wheat becomes __________ bushels per week.


Answers

As per rules I am answering the first 4 subparts of the question

1: Fiatstan

(Fiatstan has an absolute advantage in production of jeans since it uses lesser labour hours for producing 1 pair which means more number of jeans are produced per labour hour)

2: Fiatstan

(Fiatstan has an absolute advantage in production of wheat since it uses lesser labour hours for producing 1 bushel which means more number of bushels are produced per labour hour)

3: Botoga’s opportunity cost of producing 1 pair of jeans = Hours to produce jeans/ Hours to produce wheat

= 80/16

= 5 bushels of wheat

4: Fiatstan’s opportunity cost of producing 1 pair of jeans = Hours to produce jeans/ Hours to produce wheat

= 24/12

= 2 bushels of wheat

.

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